Canada's underused housing tax (UHT), which took effect on January 1, 2022, had its first filing deadline on April 30, 2023. However, the Canada Revenue Agency (CRA) provided transitional relief so that no penalties or interest will be applied for returns and payments received before November 1, 2023.
In a nutshell, the UHT is an annual 1% tax on the ownership of certain vacant or underused housing located in Canada that usually applies to non-resident, non-Canadian owners, but can also apply to Canadian-resident owners whether individual or corporate.
Who Must File?
Everyone who is an "affected owner" must file a UHT return for each Canadian property that they own on December of the applicable year.
Affected owners are those who are not "excluded owners" and include, but are not limited to:
- an individual who is not a Canadian citizen or permanent
resident
- an individual who is a Canadian citizen or permanent
resident and who owns a residential property as a trustee
of a trust (other than as a personal representative of a deceased
individual and other than as a trustee of a mutual fund trust, real
estate investment trust or SIFT trust for Canadian income tax
purposes)
- any person - including an individual who is a Canadian citizen
or permanent resident - that owns a residential property as a
partner of a partnership
- a corporation that is incorporated outside Canada
- a Canadian corporation whose shares are not listed on a
Canadian stock exchange designated for Canadian income tax
purposes
- a Canadian corporation without share capital
The first item on the list of excluded owners is "an individual who is a Canadian citizen or permanent resident – unless included in the list of affected owners."
Item five and six on the list of affected owners can also affect people who use a Canadian private company as a real estate holding company or a bare trustee.
For the purposes of the UHT, "owner" refers to the registered or legal owner rather than the beneficial owner, but can also capture other forms of ownership so professional legal advice is recommended.
Who Must Pay?
Even though an affected owner is required to file a UHT return, it does not mean tax is necessarily owing as there are a range of exemptions that may apply based on the following categories:
- type of owner
- availability of residential property
- location and use of residential property
- occupant of residential property
Individual owners of multiple residential properties should exercise caution as their ownership may not qualify for certain exemptions unless an election is filed with the CRA to designate only one property for the purposes of the exemption.
It should be noted that trusts are not legal entities. Therefore, it is the individual trustees who have the obligation to file the UHT return and ensure the applicable tax is paid. This means liquidity in a trust is important to avoid the trustees attracting personal liability.
What Must Be Paid?
The UHT is calculated by applying 1% by the value of the residential property and then the owner's percentage of the property. The value of the property can be determined in two ways: taxable value, and fair market value. In order to use fair market value, an election must be filed with the CRA and an appraisal of the property must be obtained from an accredited, arm's length appraiser.
Penalties for failing to file are significant. The minimum penalty for affected owners who are individuals is $5,000 and it is $10,000 for corporations.
How Can the UHT Return be Filed?
It can be filed electronically, or by mail to either the Winnipeg Tax Centre or the Sudbury Tax Centre, depending on the filer's place of residence.
Details and addresses can be found on the GOC website dealing with the UHT, along with other useful information about the UHT.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
